FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

An Electric Cooperative is Eligible to Hold a NOW Account Under
Revised Federal Reserve Board Regulation (12 C.F.R. § 204.130)

FDIC-91-79 September 27, 1991 Claude A. Rollins, Counsel

This memorandum responds to your request for an opinion concerning
the eligibility of an electric cooperative to hold a NOW account due to
an inconsistency between an advisory opinion which I wrote dated
December 1, 1987 (FDIC-87-43) and the Federal Reserve Board's
regulations governing NOW accounts, which became effective December 16,
1987.

The facts are as follows. The FDIC conducted a compliance
examination of *** ("Bank") on March 15, 1991, during which the
Bank was cited for a violation of section 329.1(b)(3) of the FDIC's
regulations (12 C.F.R. § 329.1(b)(3)) by allowing *** ("[Electric
Cooperative]") to deposit and hold funds at the Bank in a NOW
account.

The FDIC's Dallas Regional Office originally determined that
[Electric Cooperative] did not qualify as an eligible organization
under 12 U.S.C. § 1832(a)(2) upon the basis of FDIC advisory opinion
87--43, in which I found a rural electric association cooperative
ineligible to hold funds in a NOW account. However, the Bank and
[Electric Cooperative] have subsequently submitted information to the
FDIC asserting that [Electric Cooperative] should be considered a
qualified organization eligible to hold a NOW account pursuant to
section 204.130(c) of the Federal Reserve Board's regulations (12
C.F.R. § 204.130(c)).

The Federal Reserve Board's regulations governing eligibility for
NOW accounts apply to member banks. As you know, the FDIC has not
issued similar regulations for state non-member banks. Although the
Federal Reserve Board's regulations apply only to member banks, the
FDIC generally defers to their interpretations with respect to NOW
accounts.

As previously noted, section 204.130 ("Eligibility for NOW
accounts") was promulgated by the Federal Reserve Board subsequent
to the issuance of my advisory opinion. Section 204.130(c)(1) provides,
in relevant part: "[a] nonprofit organization that is
operated primarily for religious, philanthropic, charitable,
educational, political or other similar purposes may
maintain a NOW account." 12 C.F.R. § 204.130(c)(1) (emphasis
added). The rule goes on to describe the kinds of organizations the
Board considers eligible for NOW accounts under this standard, one of
which includes tax-exempt organizations "described in section
501(c)(3) through (13), and (19) of the Internal Revenue
Code. . . ." § 204.130(c)(1)(i).

Section 501(c)(12)(A) of the Internal Revenue Code grants a
tax-exempt status to, inter alia, "mutual or cooperative
telephone companies, or like organizations. . . ." 26
U.S.C. § 501(c)(12)(A) (emphasis added). Subparagraph (C) of the same
subsection specifically mentions a "mutual or cooperative electric
company" in connection with exclusion of rental income or loan
prepayment in applying subsection (A). § 501(c)(12)(C). Furthermore,
the letter dated August 7, 1991 from ***, General Manager of [Electric
Cooperative], to ***, President of the Bank, indicates that [Electric
Cooperative] has received approval from the I.R.S. as a tax-exempt
organization under § 501(c)(12) for many years. These factors
cumulatively indicate that meets the second requirement of section
204.130(c)(1) as being a qualifying organization.

In conclusion, the facts and circumstances involving [Electric
Cooperative] are distinguishable from those considered in FDIC-87-43
because of the subsequent revision to the Federal Reserve Board's
regulations governing eligibility for NOW accounts. Under the Federal
Reserve Board's regulation, [Electric Cooperative] appears to qualify
as a non-profit, tax-exempt organization eligible to hold a NOW account
pursuant to 12 C.F.R. § 204.130(c)(1). As noted above, for NOW
account eligibility questions we generally defer to the Federal Reserve
Board, which is chiefly responsible for the implementation of monetary
policy. Therefore, it is my opinion that the Bank is not in violation
of the FDIC's regulation prohibiting a corporation, partnership or
association from maintaining an interest-bearing account (12 C.F.R.
§ 329.1(b)(3)).